What Goes Up Must Come Down: Gold Tumbles To Lowest Level in 5 Months

By: EW News Desk Team   Date: 29 December 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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29 December 2011

After reaching new highs in 2011, the price of gold has tumbled sharply, losing ground for the fifth consecutive trading session.

Gold has been up by more than 11 percent since the start of the year. However, as the euro plunged to 11-month lows against the U.S. dollar, gold, too, was unable to get much support amid a much stronger dollar had to settle lower for the fifth consecutive session.

Gold futures for February fell by $31.40, or 2 percent, to close at $1.564. According to Bloomberg data, it is the longest slide since October 2009.

“What’s going on in Europe is very worrying,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, told Businessweek in an email.  

The dollar’s strength is working against all commodities, including gold.

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Gold, down 10 percent from the beginning of December, has been dropping for the last month partly because of signs that the U.S. economy is growing more strongly than expected. Many traders bought gold out of fear of weakness in the U.S., but now money is flowing into riskier investments like stocks.

According to a Businessweek report, diamonds are set to outpace gold as spending in Asia rises.

Analysts interviewed said that diamond prices are poised to rise for the next four years, outpacing gold, and backed by increased luxury spending in China, India and the Middle East.

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Demand for diamonds may grow at double the pace of supply through 2020 because of an expanding middle class in China and India, said Bain & Co. this month in a report that didn’t give price forecasts.

The two nations, and the Middle East, will account for 40 percent of global diamond demand by 2015, compared with about 8 percent in 2005, said Anglo American, which agreed to boost its stake in De Beers, the world’s largest diamond miner, to 85 percent last month.

Related: How High will Gold Prices Rise?

Related: Investing in Gold is Expensive, What About Silver?


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